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Get on the right track

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Investors in trackers have been warned against over-exposing themselves to specific stock risk in oil, pharmaceuticals, banks and commodities.

The top 10 holdings in the FTSE 100 account for nearly half (49.3%) of the index’s weighting and are predominantly made up of such stocks, for example, Shell, HSBC and GlaxoSmithKline. The performance of this sector has been unstable over the past five years, according to New Star Investment Funds, resulting in significant risks to the private investor that are not always properly acknowledged.

Phil Wagtstaff, managing director, UK marketing and sales at New Star, said: “Big is not necessarily beautiful. By buying a FTSE 100 tracker, you are hostage to the fortune of just a handful of companies. If these companies fail to perform, you are stuck with them – and stuck with a poor performing fund.”

Wagstaff advised investors to choose an actively managed fund instead, allowing portfolio holdings and risk to be managed in changing market conditions.


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